No soft options with patents

Thirty years ago few IT companies would have rated intellectual property as their most valuable asset. This is now commonplace for IT companies. In the early days of software many didn't, or preferred not to, see the economic harm of copying.

Thirty years ago few IT companies would have rated intellectual property as their most valuable asset. This is now commonplace for IT companies. In the early days of software many didn’t, or preferred not to, see the economic harm of copying.

With the growing economic importance of intellectual property there has been a growing acceptance of the rights of creators to the fruits of their works through copyright. Patents are now rearing their heads in the IT world and many are grappling with how to deal with this new beast.

What are software patents?

With copyright you must copy, and so have the ability to avoid infringement by not copying. Patents can just appear and suddenly your software may be infringing a patent that you were not aware of. Patent protection is much broader than copyright and can protect an idea or concept — the notorious Amazon.com “one click” patent being a well-known example. The scope of protection is defined in single paragraph “claims” at the end of the patent.

Software patents only really came of age in the 90s. Until then a range of narrow tests limited their application. Some of the problems with software patents relate to their newness. Unlike other fields there is limited patent “prior art”, as patents have only recently been granted in this area. Further, the IT industry is not used to dealing with patent issues. In the pharmaceutical industry patents are closely monitored as they are recognised as the key asset in the industry. Pending applications are identified as soon as published and strategies developed well in advance of acceptance or grant. The IT industry must also monitor patents both in New Zealand and overseas. Efficiencies could be gained by common sector groups pooling together to monitor patent applications.

Why have software patents?

Patents have been granted for devices for hundreds of years. The main rationale for granting patents is that without the ability to capture the rewards of successful R&D investment the rate of innovation would diminish. Further, the inventor who has contributed a new technology is seen to be entitled to a reward (as when Stac sued Microsoft over its compression algorithm patent). As technologies merge it becomes impossible to draw a line where a “device” ends and software begins: most devices having a software analogue — and why shouldn’t truly inventive software be protected by patents too? Will not investment in innovative software be enhanced if the benefits can be captured?

Patent quality

This is where theory starts to diverge from practice. New Zealand Patent Office examiners can only object to the claims of a patent on the ground of “novelty” and not “obviousness”. This means that an examiner must find every feature of a claim in a single document. Thus, taking the DE Technologies patent, for example, if the examiner found a document showing every feature except language selection, he or she could not find a lack of novelty. Although a patent may be challenged on the ground of “obviousness” after being granted, this may involve expensive High Court proceedings. A first step in improving patent quality is underway with the current review of the Patents Act 1953.

Even in countries that do allow examiners to object on the basis of obviousness some pretty pathetic patents emerge. The Amazon.com “one click” patent in the US attracted much derision, although there are many worse (this patent will proceed to grant in New Zealand also unless it is opposed by the end of August). The test for obviousness needs to set a threshold that rewards only truly inventive developments and does not create a sea of dross that impedes normal commerce. For those interested in patent quality issues see Greg Aharonian’s site.

International issues

We need to be careful about moving out of step with our main trading partners. New Zealand is one of the few countries which protects industrial three-dimensional works by copyright. The result is that many are not aware that design registration is required overseas. Likewise, if we did not allow software patents the result could be that New Zealand software producers could be naïve to software patent issues when exporting. Further, the internet means that foreign patents may be infringed by a server in New Zealand. In a recent UK case a patent for a betting method was found to be infringed by a server in Curacao when a UK punter placed a wager via the internet. The court ruled that the location of the server was irrelevant as the commercial use was in the UK.

Risk management

Software patents are here and around the world. This is another area of risk management that the IT industry must come up to speed with. Patents offer the opportunity to fully exploit an innovative concept. Patents are commercial tools and regardless of philosophy it is commercially naïve to ignore the opportunities they present.

Terry is a partner at Baldwin Shelston Waters.

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